Solved: On January 1 2017 Pinnacle Corporation

exchanged 3 200 000 cash for

On January 1, 2017, Pinnacle Corporation exchanged $3,200,000 cash for 100 percent of the
outstanding voting stock of Strata Corporation. On the acquisition date, Strata had the following
balance sheet:

Pinnacle prepared the following fair-value allocation:

Fair value of Strata (consideration transferred) . . . . . . . . . . . . . . . . . . . . . . . $3,200,000

Carrying amount acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,600,000

Excess fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .600,000

To buildings (undervalued) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000

To licensing agreements (overvalued) . . . . . . . . . . . . . . . . . . . . . (100,000) . . . 200,000

To goodwill (indefinite life) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 400,000

At the acquisition date, Strata's buildings had a 10-year remaining life and its licensing
agreements were due to expire in 5 years. At December 31, 2018, Strata's accounts payable
included an $85,000 current liability owed to Pinnacle. Strata Corporation continues its separate
legal existence as a wholly owned subsidiary of Pinnacle with independent accounting records.
Pinnacle employs the initial value method in its internal accounting for its investment in Strata.

The separate financial statements for the two companies for the year ending December 31,
2018, follow. Credit balances are indicated by parentheses.

a. Prepare a worksheet to consolidate the financial information for these two companies.

b. Compute the following amounts that would appear on Pinnacle's 2018 separate
(nonconsolidated) financial records if Pinnacle's investment accounting was based on the equity
method.

? Subsidiary income.

? Retained earnings, 1/1/18.

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 ? Investment in Strata.

c. What effect does the parent's internal investment accounting method have on its consolidated
financial statements?

On January 1 2017 Pinnacle Corporation exchanged 3 200 000 cash for

ANSWER
https://solvedquest.com/on-january-1-2017-pinnacle-corporation-exchanged-3-200-000-cash-
for/

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